Abstracts

Bajari, Patrick and Hortacsu, Ali. Winner's Curse, Reserve Prices and Endogenous Entry: Empirical Insights From eBay Auctions. Working Paper. Jan 13, 2000. [added Mar 28, 00]

Abstract: Online auctions have recently gained widespread popularity and are one of the most successful forms of electronic commerce. We examine a dataset of eBay coin auctions to explore features of online bidding and selling behavior.We address three main issues. First, we measure the extent of the winner's curse. We find that for a representative auction in our sample, a bidder's expected profits fall by 3.2 percent when the expected number of bidders increases by one. Second, we document that costly entry is a key component in understanding observed bidding behavior. For a representative auction in our sample, a bidder requires $3.20 of expected profit to enter the auction. Third, we study the seller's choice of reserve prices. We find that items with higher book value tend to be sold using a secret as opposed to posted reserve price with a low minimum bid. We find that this is, to a first approximation, consistent with maximizing behavior. We also develop new techniques for structurally estimating common value auction models.